Insurance regulator caps CEO pay at Rs 1.5 cr

Jaidev Majumdar.

The insurance regulator has set a ceiling of Rs. 1.5 crore on pay-packets for industry chief executive officers (CEO) linked to the policyholders’ fund, the watchdog’s chairman said on Wednesday.

Industry officials say that any pay-packet that crosses such a ceiling would have to be funded by the promoters of the company and not given out of the funds taken from policyholders. The Insurance Regulatory and Development Authority (IRDA) has also decided to make valuation of insurance companies mandatory from the current fiscal as per a uniform and standard methodology based on the companies’ “embedded value,” chairman J Hari Narayan told reporters in Kolkata.

IRDA is hoping that this uniformity in calculation methodology will do away with the confusion in current disclosure practices, which are based on various European and American calculations and, therefore, lacks uniformity.

Embedded value is the current value of an organisation based on its future profits. Since most of the joint venture partners of insurance companies are either European or American, disclosures are made as per the practices prevalent in these countries.

Narayan said the regulator has engaged the Institute of Actuaries of India to formulate the methodology and the institute is now ready with its report. Besides valuations, the institute has also prepared disclosure guidelines for mergers & acquisitions (M&A) in the industry.

The IRDA chairman pointed out that the level of disclosures required to be filed by insurance companies in India is still “narrow” compared to many other countries. “We are talking to SEBI to come up with new disclosure guidelines,” Narayan said.

Narayan said profitability of companies in 2008-09 had come down. While profits went up for 13 life insurers, nine saw the profit dipped. In the non-life category, 12 firms saw profits go up while it dipped for five.